TelexFree owner arrested, criminal charges filed

Ever since those forfeiture notices were issued at the Nevada bankruptcy trial, we’ve been waiting for the US Attorneys Office to show their hand. And on Friday morning they did just that.

TelexFree co-owner James Merrill has been arrested on “conspiracy to commit wire fraud charges and his partner in crime, Carlos Wanzeler is now a fugitive in hiding.

Wanted on the same charges, Carlos Wanzeler’s whereabouts are currently unknown, however it’s believed he fled to Brazil shortly before the arrest warrants were issued.

TelexFree and its management have always insisted they’re willing to co-operate fully with any and all regulatory investigations and related matters, but apparently that doesn’t extend out to the arrest of Wanzeler.

is any fraudulent scheme to intentionally deprive another of property or honest services via mail or wire communication. It has been a federal crime in the United States since 1872.

With TelexFree being a $1 billion dollar Ponzi scheme that owed around $5 billion in monopoly money to its investors, it naturally falls under the category of a “fraudulent scheme”.

The US Attorneys Office complaint against Wanzeler and Merrill (right) is supported by an affidavit from Homeland Securities Special Agent, John Soares. Soares’ affidavit tells a familiar story. It contains the same information we’ve been publishing here at BehindMLM for nearly two years now.

(TelexFree) derived only a fraction of its revenue from VOIP services – about 1% of TelexFree’s hundreds of millions of dollars in revenue over the last two years.

The overwhelming majority of its revenue came from new people buying into the scheme. In fact, TelexFree was only able to pay the returns it had promised to its existing promoters by bringing in money from newly recruited promoters.

Details of the money laundering entities Joseph Craft set up for Wanzeler and Merrill are also revealed:

Wanzeler testified that TelexFree Financial was created to pay the employees of TelexFree because they “have so many problems with the banks”.

This appears to be a reference to US banks repeatedly shuttering TelexFree accounts in 2012 and 2013 because of concerns Merrill and Wanzeler were doing something illegal.

TelexFree used so many accounts in a roughly two year period because US banks, following their protocols for deterring money laundering or other financial misconduct, repeatedly shut them down and forced Merrill and Wanzeler to transfer the funds elsewhere.

Joe Craft, TelexFree’s financial advisor and CFO, would later argue with the SEC that he had no part in TelexFree’s fraud. As part of negotiations that would later “break down”, Craft demanded the SEC remove any verbiage that indicated he had any responsibility or had a hand in any of TelexFree’s criminal activities.

i-Payout, TelexFree’s last payment processor following stints with ProPay and Global Payroll Gateway (GPG), also come under fire.

Agents reviewed records provided by i-Payout. The records show that in 2013 i-Payout recorded 52,562 payments to TelexFree totalling $66,036,927.

Of these, there were 2153 invoices for $49.90 (the monthly VOIP cost), totalling $107,434, or less than 0.2%.

Despite helping to facilitate the obvious fraud taking place at TelexFree, in October 2013 i-Payout had the gall to write to BehindMLM to protest our TelexFree coverage. i-Payout sought to assure us that they’d conducted “complete due diligence on TelexFree”, concluding that the company was “compliant with all US laws”.

Both ProPay and GPG had the sense to boot TelexFree as a client once they realised what was going on. i-Payout though couldn’t resist the lure of fees generated from TelexFree’s Ponzi activities, ultimately sticking with TelexFree and cashing their checks until the end.

One would hope i-Payout have since terminated whoever was in charge of their due diligence dept.

Undercover sting operations conducted by Homeland Security agents are also revealed in the criminal complaint. Detailing an attempt to purchase TelexFree VOIP (which took two hours), and the infiltration of a TelexFree promotional event:

On March 9, 2014, members of HSI, some in an undercover capacity, attended the “TelexFree New Compensation Plan”Conference at the Mariott Copley Place Hotel (in) Boston, Massachusetts.

Even as TelexFree’s management and top promoters sought to convince the affiliate-base at large that they were still viable (despite running out of money), US regulators were there amongst them building a case – recording everything that was said for later use as evidence.

While TelexFree management took to the stage in Boston to try and convince everyone their VOIP mattered, undercover agents observed

Neither Merrill, Wanzeler, nor any other TelexFree executive mentioned that the company actually generated only a fraction of its revenue from selling TelexFree’s VOIP product, and instead depended on generating revenue from new promoters that could be used to cover TelexFree’s payment obligations to existing promoters.

Based on extensive review of TelexFree’s banking activity, credit card activity, and portions of its backoffice data, Wanzeler’s statement… was false.

In their testimony to the Massachusetts Securities Division, both Wanzeler and Merrill reaffirmed that 580,000 people bought VOIP packages in February 2014, and Wanzeler “guaranteed” that most of those people were “outside” retail customers.

But 580,000 customers each paying $49.90 would have generated $28,942,000 in revenue from VOIP sales, and thousands of $49.90 entries in TelexFree’s bank and credit card processing records.

That revenue does not appear in TelexFree’s bank and credit card processing payment records in that time frame.

As to “back office” activity, that would involve promoters, or people recruited by promoters, buying the product, and such persons would not appear to be legitimate “outside” customers.

And people wonder why I make such a big deal of pointing out retail viability in my MLM company reviews…

James M. Merrill and Carlos N. Wanzeler, principals of TelexFree, Incorporated and related entities, were charged today in a federal criminal complaint, charging them with conspiracy to commit wire fraud.

Merrill, 53, of Ashland, Mass. and Wanzeler, 45, of Northborough, Mass., were charged in a one count criminal complaint filed in U.S. District Court in Worcester, Mass.

If convicted, each face up to 20 years in prison.

Merrill was arrested today by federal authorities and made an initial appearance in U.S. District Court in Worcester. A federal arrest warrant was issued for Wanzeler who is a fugitive.

United States Attorney Carmen Ortiz said, “The scope of this alleged fraud is breathtaking. As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.”

“I am very proud of the tireless efforts of my special agents. Investigating the flow of illicit money across U.S. borders and the criminal enterprises behind that money is one of our top priorities,” said Bruce Foucart, Special Agent in Charge of Homeland Security Investigations.

“While pyramid schemes are nothing new, the potential scope of this case will hopefully serve as an educational lesson for all. The main point is clear; if it sounds too good to be true, it probably is.”

TelexFree reported sales of $1.016 billion, while known sales of the TelexFree VOIP product represented less than 0.1% percent of TelexFree’s total revenues.

United States Attorney Ortiz, SAC Foucart and Vincent B. Lisi, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the announcement today. The case is being prosecuted by Assistant U.S. Attorneys Cory Flashner and Andrew Lelling of Ortiz’s Worcester Branch Office and Economic Crimes Unit, respectively.

The DoJ close out their press-release by asking victims

of the alleged TelexFree, Inc. scheme (to) please send your contact information to the following address:

USAMA.VictimAssistance@usdoj.gov

I’d also urge that if anyone’s in Brazil (or elsewhere) has seen Carlos Wanzeler, that they get in touch. Wanzeler is a wanted fugitive now who is up on criminal charges.

Meanwhile to the TelexFree “leaders” still uploading YouTube videos and Facebook updates: The time for filing silly “we love TelexFree” letters in court and putting out false and misleading information is over.

Hey OZ, do you think the bankruptcy review meeting for the 27th will still happen, or will it be considered moot? WIth all these criminal charges it would make sense to just throw away this ridiculous bankruptcy petition.

As of yet no formal criminal charges have been filed in Brazil. They’re sitting on $350 million dollars of frozen funds however so I imagine something will be filed eventually.

The civil case has been predicted to be ruled upon by mid-year, which is coming up. Last I checked they were preparing expert testimony.

TelexFree and Costa are likely to be less confident going forward though, and with the added possibility of Brazilian regulators striking while the iron is hot (as in the next few weeks) with criminal charges of their own, deals could be made.

One also cannot rule out the possibility of regulatory cooperation between Brazil and the US. Acre Public Prosecutors mentioned this last year (alluding to an SEC investigation) but it was ridiculed by TelexFree at the time.

It should be noted Costa was singing the praises of the US judicial system just last week or the week before. I recall him stating that, from a regulatory standpoint, he wished Brazil was more like the US.

Here’s what Sann Rodrigues posted on his FB page a few minutes ago (translated from Portuguese):

FOR MEDITATION (SANN RODRIGUES)

Telexfree

I never advertised Telexfree as an investment opportunity. AND NEVER collaborated DIRECTLY OR INDIRECTLY TO PROMOTE Telexfree AS A PYRAMID.

I believe most of the PROMOTERS / AFFILIATES worked believing it to be a serious and legal business as the legal department of the company assured us. Until the day the company filed an application for judicial reorganization (chapter 11) on March 13th.

We were taken by surprise, and for me it was worse because I had my name involved in SEC filings.

Now I can only fight for thousands of people like me who have been deceived and withdraw my name from this process.

Oz: It should be noted Costa was singing the praises of the US judicial system just last week or the week before. I recall him stating that, from a regulatory standpoint, he wished Brazil was more like the US.

One need only look at the twenty something rejected appeals in Brazil to ascertain TelexFree management aren’t the sharpest tools in the shed.

Perhaps they figured they’d have months to escape, after all the Brazilian civil case has dragged on for some time now. An inflated sense of self-confidence is all too evident in Carlos Costa’s YouTube rants (turns out God doesn’t step in and save Ponzi schemes after all).

I figure Wanzeler jumped on a plane the second the Nevada bankruptcy verdict was handed down. He was probably already at the airport waiting for a call from his lawyer.

Those forfeiture notices issued on May 2nd were as clear an indication as any of what was coming…

Dear mr. Oz. so, if its free of charge, and taking this chance you’re reading the comments, I suggest you to take a step closer to another brazilian (who would say that?!) mlm coming in your way. it’s called “paymony” and they advertise it’s own currency (called emony) as some sort of crypt-currency as bitcoin.

weirdly they’re currency is largely accepted in their own trades! (who would thought that(2)?!). there’s a 4 hour video on the web in which one of their “associates” try to sell a land rover and helicopter – I mean, emony – to one undercover expert – better than watching forrest gump..

David: Guess the thrill of the moment and the 15 minutes of fame is too enticing to pass up for some folks.

And I guess they’re just a bunch of dumb, unethical guys who got lucky. I bet they thought it would be just another small scheme, as the others they have previously done, and that it would end just like so many others: people disappear and justice could not do anything.

Remember: Costa, Wanzeler and Merrill were partners in crime for a long, long time.

Don’t think of those as the “three musketeers” ’cause they’re nothing more than “three blind mice”.

Another upcoming MLM crap is one calles LUVRE .. Which is supposedly about reforestation and contracts regarding such.. My neighbor made over 30.000 REAIS in a month.. He keeps inviting me in… It’ll be interesting to know more about that scheme..

And OZ you are the man bro.. Thank you for this blog and all the info..

Here’s our friend Robert Love on May 7th. He’d just heard that the Nevada bankruptcy proceedings had been moved to Massachusetts:

Robert Love: The SEC is going to get chewed up on their home court. LOL!

Here he is again 27 minutes ago, upon learning that James Merrill and Carlos Wanzeler have been criminally charged:

Robert Love: Behindmlm.com is not a reputable source. The dude who runs that site “OZ” is a very negative individual. He likes to stir things up and create chaos amongst the MLM community. He is a very disgruntled individual. Saying a prayer for him tonight!

When Love first learnt about the SEC investigation?

Robert Love: The SEC has to do this investigation. That is why you pay taxes. The SEC needs to stretch their legs and flex their muscles once in a while. They are in the public eye. This is a necessary process that must take place.

I am not sure if the SEC knows what they are up against. LOL – The MLM attorneys that represent TelexFREE are the best money can buy…PERIOD! I am going to say a prayer for the SEC. I feel sorry for those guys. They are going to get ripped apart. LOL

Oh and let’s not forget:

Robert Love: If TelexFREE were a Ponzi or Pyramid, they wouldn’t have lasted this long.

And you Brazilians thought your affiliates alone had a monopoly on stupid. Ha!

william:
I suggest you to take a step closer to another brazilian (who would say that?!) mlm coming in your way. it’s called “paymony” and they advertise it’s own currency (called emony)

It has been reviewed:behindmlm.com/companies/paymony-review-digital-currency-ponzi-scheme/

I don’t believe anyone have had the time to look more closely at Paymony after that review.

“Internal currency” is normally one of the signatures you can expect to find in a Ponzi scheme, e.g. payouts to a back office that can be used for reinvestments.

A payout to a back office is similar to a PROMISE = “we promise to pay you this amount (if we have enough money coming in from other investors)”.

In TelexFree, you could use that promise to purchase more AdCentrals or to pay for VOIP subscriptions. It doesn’t make the promise worth $289, $1,375 or $49.90, but people can clearly BELIEVE in ideas like that. It failed when too many people wanted to withdraw MONEY rather than having PROMISES in their accounts.

If I promise to pay you $100 per week for posting ads, and you can pay me back with my own promise when you purchase something, it will eventually become a lot of empty promises.

Oz, you’ve become popular and our best source of info for Dominican Republic via Twitter.

An economist by the name of Alejandro Fernandez had been warning people about TelexFREE in Dominican Republic for some time now and has received many death threats. Also, the most popular investigative reporter in DR did a piece on her show about TelexFREE…

The Dominican authorities are doing a good job so far of going after the top “promoters” that are spread throughout the country and their properties will be seized. I think if this goes through and there’s justice in this case, it’ll be a first in DR and it will change the way people view the justice system.

It’s a big opportunity to step up to the plate. We have a great Attorney General Francisco Dominguez Brito so things are looking up and up. Thanks so much Oz!

Oz, I’m sad to say but it’s unlikely that a similar arrest would happen to Carlos Costa in Brazil.

The current penalty for Pyramid Schemes is 2 years maximum, and usually they cut a deal to fulfill it otherwise, with community service, etc. Because the maximum penalty is so short, it’s really rare anyone will get arrested for that.

BUT… if they accuse him of evading or laudering money, escaping taxes, or any other charges, then we CAN be arrested. And God knows when that’s gonna happen…

(Ozedit: Yeah it is. Click the second navigation menu and then the fourth option. It tries to redirect you to the TelexFree website under the account “whf888”. Returns 404 because of the TelexFree shutdown.)

I read one report that said they arrested Merrill while he’s travelling on MA Route 9, which is a state highway that parallels Interstate 90. To the east, it goes straight into Boston… and Logan international airport. To the west, it goes into Worcester, and Worcester regional airport.

Have no idea where Merrill is actually going, but it’s clear that HSI scooped him up before he *could* go anywhere.

thanks god I never signup for telexfree … I felt that the company was a scam. but a lot of people that was involved they know that was a scam but everyone was happy making money with simple 20 mim job published ads..

but carlos is not the only guilty I think all the people that signup they also should be held responsible too. they all eat together and party together..

I am from brazil and I had people from brazil aksing me to enter the company and thank god I never enjoy them .. plus the owner was cristian believer 90% of the telefree member was from cristian church. that is a shame….

According to Wanzeler, the government of Brazil froze around $350 million in June 2013. Total amount paid in to TelexFree through bank was $446 million. In January 2013, TelexFree had $200 million deposited in bank accounts. All amounts are for Brazil.

USA – MANY DIFFERENT INTERPRETATIONS (TelexFree’s own numbers)

Income through bank
LLC $119 million + INC $56 million = TOTAL $175 million

Income through “system” (back office)
LLC $572 million + INC $169 million = TOTAL $871 million

—

Commission payouts through bank
LLC $50 million + INC $20 million = TOTAL $71 million

That’s obviously fake. Who wears a shirt with a purple color that transitions to bright white at the waste? Additionally the head angle is off, aside from being out of proportion with the rest of the body.

Oz: That’s obviously fake. Who wears a shirt with a purple color that transitions to bright white at the waste? Additionally the head angle is off, aside from being out of proportion with the rest of the body.

And now, due to that fake photo, telexzombies are celebrating, saying Merrill was not arrested and/or that he was just “called to explain some things to police”.

in view of the present situation of things with Telexfree, where do I stand as a promoter who has just joined? How do I recover my money back….?, Or will the organisation still continue to exist despite the arrest of the Principal actors..?

Can someone help me out with an answer as I never got nothing from the advert placement I did for the organisation since I started.

ASD Updates have a ton of documents up now in their google docs page. Document 97 stood out for me. People sending their “seal of approval” of telexfree to the Boston Court. Some letter are a joke, with drawings and doodles…. come on folks, this is serious stuff! You’re not sending homework to your 1st grade teacher… this is a federal court for pete’s sake! Judging by those letter, I can see why they felled for this scam in the first place.

Craft tried to demand the SEC exclude his accounting firm, they agreed but only at a later date (details need to be worked out. Craft objected and that’s when communications broke down.

Judge sided with the SEC and granted their version of the proposed order. Now any and all of Crafts’ employees are subject to breaching the TRO. One interest side-effect concerns whether or not Craft quarantined the TelexFree money.

If he didn’t, he just exposed all the staff at Craft Financial Solutions and Craft Trust services to a boatload of problems (everyone has to declare and return if they have TelexFree money).

This list is huge, San Rodrigues, Julio Silva, Marcio Pinheiro, just to name a few… If the authorities really want to stop this type of scams, they should use telexfree gang leaders as an example since this was such a big scam.

CrooksInBoston: This list is huge, San Rodrigues, Julio Silva, Marcio Pinheiro, just to name a few…
If the authorities really want to stop this type of scams, they should use telexfree gang leaders as an example since this was such a big scam

I agree with you 100% I these guys have been scamming the community for years and always getting away with it!

Due to the fact that the Brazilian community are too afraid to go to the cops! First with mortgages now with Telexfree. Pr. Julio has now moved to a new pyramid/pony scheme!!!

Here in Madeira things happened the other way around…TF promoters first used the local public tv station RTP Madeira (some inside help?) to atract even more suckers into the scam, after the “freeze”, none of them have been seen since…nor the local authorities have done anything to change that (why is that? hummmm…).

I thought that being a western europe region, Madeira Island, its government, authorities and people would have their personal and colective standards up there next to other european first world countries…I was wrong…

What do we make of James Merrill? It is possible that he got suckered into the scheme and believed all along what his attorney was telling him: that the company was legit if it had a product named VOIP. But he obviously enjoyed the money since “By the end of 2013, Merrill had transferred over $3,000,000 from TelexFree accounts to his personal accounts,” the complaint states.” (Telegraph).

There were many people involved in the TelexFree operation. Wanzeler has vanished and there is suspicion that he may have fled to Brazil. No mention is made about his wife. Where is she? Did she flee with him? Wasn’t one of the checks allegedly made out to her when U.S. authorities invaded the TelexFree office in Marlboro?

Bruno…bro, Madeira is akin to Shetland islands on north of Scotland. Isolated and inbread!…ok, ok a bit of a joke^^:).

Madeira is almost a Mafia island…a mini Scicily. With a very peculiar and particular psychology that affects all native born there according to their education and principles. A shame…it could be quite a utopian location. Telexfree new name: “Telexanal”!

Henry:
If yes, what do you think would be the likely process of getting our money back since we area all from different countries….?

You can look at the Zeek Rewards case, a $850 million Ponzi scheme shut down in August 2012.
* Voluntarily shut down.
* Placed into Receivership (administration)
* Claims process from May 2013 to September 2013.
* First round of payouts is “just around the corner”.
* Clawbacks from net winners are going on right now.

I don’t expect you to read all that, but if you know where to find information and what to find there then explanations will be much easier to write.

It’s too early to predict anything for TelexFree, we can’t give any meaningful answers. It has currently status as a Chapter 11 bankruptcy / reorganizing case, but that will probably be changed after the May 27 court hearing.

I can predict that the TelexFree case will be more messy. People had multiple accounts, used fake names, paid directly to sponsors rather than to TelexFree, received payouts directly from people they recruited, and so on and so forth.

Make sure you’re able to identify your account (username etc. for all accounts you had). Make sure you’re able to identify your investment (only money IN and OUT, you don’t need to count any back office payouts).

I may link to the examples I posted, or I may produce some new ones. They showed how to separate between real monetary transactions and back office funds. Any misinterpretations will most likely be repeated then. 🙂